Common Prosperity: The Path to Common Poverty in China?

welcome to csis online the way we bring you events is changing but we'll still present live analysis and award-winning digital media from our drakopolis ideas lab all on your time live or on demand this is csis online good afternoon uh my name is scott kennedy i'm the trustee chair in chinese business and economics at the center for strategic and international studies and i'm delighted to invite you today to this terrific roundtable discussion about xi jinping's common prosperity drive is it the path to common prosperity or a path to common poverty uh to help me uh and all of you understand where china is going in in ways big and small we have three fantastic uh leading experts uh with us to break all of this down uh from uh new york and jp morgan we have joyce chang she's the managing director and chair of global research with jp morgan joyce is one of the smartest people to be able to analyze china's economy what's going on in the financial sector china's economic connectivity with the rest of the world uh i really wish that i had some money with jp morgan so that i could benefit from her advice every single day but i only get to talk to her a few times a year and so this is really a fantastic treat for me joining us from uh points west is scott rozelle he's the helen f farnsworth senior fellow and co-director of stanford's china center for center for china's economic ins center for china's economy and institutions i should know that because we are collaborating on a lot of cool stuff uh and he's been at stanford for several years he is uh one of the world's leading experts on rural china uh chinese agriculture uh education issues of of equity and if there's anyone who can talk about common prosperity or poverty it's scott rozelle also joining us today is john holden who is the senior director for the china practice at mclarty associates uh he's also hopefully not to his detriment a non-resident senior associate with our program here at csis and is a mentor to me uh he was former chairman of amcham china ran multiple businesses in china was president of the u.s uh china business council and is a great friend and he's joining us today i believe from uh the uh great state of arizona uh where i believe it's most likely a little bit warmer than here in washington d.c uh joyce scott and john thank you all for being with us today i don't want to spend a whole lot of time giving background information about uh this policy of common prosperity other than just to say uh i think people are really confused about what this is is this xi jinping angry at jack ma and therefore taking it out on private businesses and putting them in their place is this really an effort to launch a new progressive era in china where we are trying to unders where they really are trying to limit the power of big business in this in the same way that say progressives in the united states or europe uh would try to do and bring more equality and fairness to the economy is this cultural revolution 2.0 um where china is going back uh 50 years uh from which it will not emerge in very good shape or is there something about this that that no one is talking about that we really need to under understand i think that the fact that we can't travel to china is one reason we're confused the others is just you know i need to get a lot more smart on this uh and you all are going to help me and everyone who's watching today so i really just want to start uh first with this round robin here with with joyce scott and john what is this all about what is the motives or intention of this drive towards common prosperity from from your vantage point joyce thanks for being with us um thanks so much scott and it's great to be here with scott and with john and also just wanted to say i appreciate so much the work that csis is doing as we are looking at all of these issues related to tech the cyber war you know climate change but common prosperity is not new it is an essential part of socialism and it has been around since 1949 taking different iterations under different leaders so you had first chairman mao where it was all about eliminating the private and individual economy that was a failure then you had deng xiaoping starting on reform and opening up china globally in the 1980s really with a goal to eliminate poverty and now you have the current iteration that really started under president xin tao and that was about developing a more people-oriented scientific approach and you see that in the common prosperity language today that talks about the green economy and innovation the new economy now this really was strengthened under um president xi jinping who has focused on the whole issue of inequality and basically income and inequality and in ways in which he can redistribute this um you know many of these goals they say are ones that they have in place until 2035 40 40 20 49 so this is not going away um anytime soon but what does common prosperity mean so i think there's three different aspects that i would just um you'll focus on right now um first of all it really is focused on the new economy sectors and we saw this with a lot of the financial regulatory tightening and china has a history of doing this um many sectors that expanded early and fast whether it was telecom shipping banking went through this historically so where they had basically said they wanted you control the amount of profitability put more regulation in um the second part of it though really is focused on the the middle class in china and the fact that disposable income is you know is still very limited when you look at the cost of housing and transportation and education so there has been a focus on consumer welfare and social welfare and the third aspect of it which we see playing out this week when we look at what's happening in the commodities markets is the um green economy and the decarbonization goals so these are longer term goals this is actually not a new approach in china it's taken many forms of different iteration and i think that what investors really need to worry about going forward is it's not just the economic risk that they need to watch they're also going to have to really watch the policy risk um and i think that's what the markets are grappling with right now as they see these measures rolled out i don't think that we're done with the regulatory tightening i think that there's still you know more to come and i would emphasize that these are longer term goals that will play out over many years but i think common prosperity is is certainly nothing new it is an essential element of socialism thank you that's really helpful um that that provides a clear analytical framework to think about this uh scott you follow issues of of equity and prosperity uh a lot uh your book invisible china pointed to places where there wasn't the type of equities and goals achieved that people had wanted how do you see what china is trying to do now well i was just you saw me i was taking notes joyce and uh and i thought that was because i think this is totally new and potentially totally totally new um and uh but i think we have absolutely no idea where it's going at um because it's been i call this the summer of 2021's you know explosion of new policy objectives right from data and security to de-risking to raising the birth rate to rebuilding decentralized cities carbon emissions that joyce talked about and common prosperity it's like like one long breath and all of these ends right and and right if we hit him by 2049 you know china would be in great shape you know um the the trouble is is i don't know where if we look at the instruments that have been used so far for these policy goals is you know it's it's this this sort of hodgepodge of these you know um uh we we want to increase birth rates so we're going to cut down cram schools right we're going to um uh we're going to try to reduce carbon emissions right so we raise electr raise coal power uh the price of coal and the power gets shut off and what you know common prosperity right we i i'm not sure exactly you know what they're going to do um so you know i think that so far the traditional levers we haven't even heard them talk about now maybe joyce is right and i think i think that's the the that's the thing that you know i hear and take away from what you just said joyce but it's it's it's early it's a long run process so are they going to roll out we haven't heard the word taxes right we haven't heard the word um uh how about raising investments into uh human capital uh then i'm going to talk about a little later i don't want to get into it now but but i think that that that's where we're at this this common prosperity is so new um we don't even know you know what they mean um and uh yeah certainly if we if we get had the richest uh 50 million people in china give away half their wealth um yes the middle class is doing pretty well joyce even though they they have a belt tightening but the middle class is only 300 million people the low class there's no poverty in china right but the low income class is 1.1 billion people 1.1 billion people are are low income if we took all the philanthropy this has been the only common prosperity instruments we're going to raise income of the low the lower class by 7 so we have a long ways to go before we see where china's really going on this uh john holden you've uh watched china for many years you started watching china during the first period that ma that joyce referred to during the mao period you saw all of the dung period in the later who period and now was she uh more continuity than change uh old wine new bottles uh or is this really something pretty new i'm trying to find every analogy i can to confuse the audience so help us figure this out well thanks scott i think that joyce is absolutely right to to refer back to 1949 in the original intent of the of the ccp this is something that xi jinping has been talking about a lot recently and i just want to recount a an anecdote that'll put this into perspective a little bit for us 20 years ago i visited shanghai this was by the way i was not not the us china business council i was president of the national community u.s china relations and when i first took that job i visited shanghai to visit wang dalhan who was the former mayor of shanghai and was an advisor to john zumin and we had a fascinating discussion and i said well you know it's really hard to understand what chinese leaders think about the future of their country he said uh in your hotel room tonight there will be my answer to your question the answer was a five volume history of the rise and fall of the of the soviet union and key key strategic decisions so this is a backdrop to think about um and you know we we asked the question well is common prosperity is it trying to align with the people in order to bolster xi jinping's political uh chances yes to some extent but not really it's really to align um the goals of china with with the uh the part marxist marxism leninism thought and this these 20 20 35 and 2049 goals so that's it that's all very important i think there's scots pointed to some of the disruptive dimensions of what's happening today and i think that's absolutely right this is a they are responding with with sharp actions to deal with what we can only presume are major problems and you know i'm reminded of one job back in 2007 when he said china's economy is unstable unbalanced uncoordinated and unsustainable to some to a large extent they haven't resolved these problems and they're still wrestling with the how to recalibrate the relationship between the state and the market and at the end of the day what what is this about well to some extent this is really about political control if you have a class of gazillionaires around flying around the world um who may have no allegiance to you um this is a this is a potential problem and i i think back on the fact that xi jinping is the first chinese leader since um since dung who was not selected by dung he had to compete in an atmosphere and so his his um sense of uh his own security is something that he has to think about constantly and so eliminating um sources of political rivalry people who may have a different agenda um is is important certainly the chinese tech elite are not going to be talking about common prosperity unless they're told to do so so that that's super helpful by the way i'm sorry confusing institutions oftentimes now i don't even know where my glasses are when they're sitting on my head so my team can con can can confirm that so uh apologies you know i guess what i can conclude from what the three of you have said is that to call this a policy or a rectification camp rectification effort or a campaign or an attack on high tech or any one thing is not enough that this is bigger right it has it echoes in the past it may uh rhyme with some other policies or be it a slight change of tactic but it's very large and we should not try to minimize the shift that's ongoing i think that's at least a commonality here amongst all of you uh and so i think that's very important because we we can't understate how important this is even if we still are trying to define the four corners of it um so i think we've made progress there joyce let me ask on the economics of this the let's say the broad outlines of the different policies from the state administration of market regulation the csrc uh the ndrc and others are roughly kind of what they are doing now what are the what are you all predicting in terms of the effect on growth trajectory for for 20 for the next 12 months uh or you know where china is going and then let's just we if we just take a ad to that a clause they take scott rozelle's policy ideas because i'm gonna come back to ask them to say they talk about they add on taxes and things like that um what would the delta on growth be there i don't like to use the word delta too often these days not because of airlines because of something else but what would the delta be on if they decided to do uh tax you know add taxes to the mix thanks so much um scott for that so we are seeing um a slowdown in the china economy and if we look at third quarter grove just quarter on quarter we have an only 0.2 percent so a very sharp slowdown now part of that is the delta variant and a drop in consumption but the financial tightening the property market is definitely having an impact um as well and we still have the overall headline growth in china you know north of eight percent this year going to five and a half percent next year but the property market is big and from a macro perspective the housing sector is a key pillar of the chinese economy it contributes about 15 percent of gdp um the real estate investment alone accounts for about 25 percent of fixed investment so if you think about a five percentage point slow down in real estate um investment that actually takes about 0.4 off of gdp growth in china and if you look at the indirect effect um you take that all into account it's about 0.7 um off of growth so this is going to have a very um significant impact and you'd already have financial tightening in other sectors but let's just take a look at everything that uh china has announced since the beginning of the year and i think scott and john both make some you know great points that some of this is very new but the key thing is that uh this this administration does not seem to think that market outcomes alone will achieve common prosperity so they've intervened but let's look at what they've done just since the beginning of 2021. so first they started the year by outlining red lines for development the ban on mining and cryptocurrency the launch of a central bank digital currency and development of a central bank digital currency a carbon neutral target the launch of carbon trading a national medicine procurement policy they closed for-profit k-12 they launched the beijing securities exchange and then common prosperity and now the ever grand saga so that's all just since the start of this year so this does have you know longer-term implications you know much beyond looking at just what's happening with quarterly um growth in china it means that they are going to take some short-term pain for longer-term gain that's what common prosperity is about and basically a view that market outcomes alone are not going to be enough to achieve the kind of equality they want to achieve now i think scott makes a great point they've done very little on things like taxes and real income distribution so when we see this we actually see property taxes when we see greater pressure by companies to raise wages and you're already seeing a number of chinese companies much as we've seen in the us in advance start to announce oh here are common prosperity targets we're committing 100 billion u.n you know to common prosperity so i think these kinds of redistribution mechanisms that we haven't seen before are new um but they're all in the name of how do we achieve better um you know equality so the first step was getting um the population out of poverty the second step is that the middle income still their disposable income is still very small because of the cost of housing transportation education healthcare so a sense that this is only going to be about property or only about the new economy it's going to affect all sectors that have to do with social welfare and i think the key thing is that disposable income and the targets they have for urban disposable income you know um are 10-year targets that they're still very far from even though they have really done an extraordinary job of lifting the population out of um you know the the the the levels of poverty that had really been um in place um before they began you know many of the reforms under xiao ping so i think this has further ramifications we see growth coming down in china to about five and a half percent next year um i think the demographics also point to europe coming down even lower than that in you know the years that lie ahead and that has global ramifications um we estimate that every one percentage point decline in china's growth takes about half a percent off of global growth and it's even more than that for many of the emerging markets countries that are commodity exporters um you know for latin america it's practically a one-to-one correlation so i think that you we should expect to see more financial tightening to come given the nature of these goals and what they have announced um there are some very new things in it but i think what is very clear is that this um inequality that they want to address are we're going to see some policies we haven't seen that do relate to um property taxes you know income taxes um you know and also to you know pressure for higher wages on the part of companies hey joyce i'm going to ask you to do double duty because you said something you hinted at evergrand so i need you to we're we're not going to do a real estate event so but so just like the big take-home they're going to cauterize the evergrand problem and or and spend a lot of money doing so and you know have have uh you know folks you know break up the company in little bits and pieces across the country um or is this gonna is your estimate that you just gave us assume that or does it leave open the possibility that there are that there are other real estate companies that that uh get go in harm's way and this spreads i think there is going to be more stress on the overall property um development sector but let me just go through some of the numbers first of all we do not think that this is a systemic risk to the overall financial system in china property developer loans are only about seven percent of total loans but about 40 percent of bank loans are collateralized by properties including mortgages but we've taken a look at a couple of things such as the um you know the total size of evergrass death um is the equivalent of about 1.2 trillion cny that's about 41 basis points in total credits in china and if you look at the loan losses for the first half of the year that the banking system was holding it was 340 basis points for loan losses versus the 41 basis points for the total debt so i don't see this as systemic that's the first thing um that i would say but um just given the size of the property sector given the size of the housing market um we are going to see more um pressure you know come about in china right now um and we are expecting that national sales um land sales i mean that that you could have a 15 to 20 decline um you know for the developers um so i don't think that this is over yet and we have to look at what is surprising and what's not surprising so it's not surprising that they've allowed more corporate defaults this had been something that was in place what is surprising is the size of this one i mean this is you know when the largest borrower is the biggest non-investment grade issuer in the offshore china corporate dollar bond market i do think it's going to be a state guided solution just given um you know the size of this problem i don't think it's going to be systemic and i do think that china is going to have to take some macro steps as well to address the slowdown that they've seen in growth and the effects of this tightening so we do think that they're going to do more triple r cuts in october um you know more policy rate cuts um to come and we do see a slow down um you know that you know had already been in place even before many of these tightening measures and before ever grant had been um announced so i think you're still you have to be prepared for you know the market volatility to um be you know to to stay with us for um quite a bit of time that's super helpful that's super helpful i've i've now moved my financial situation from proletarian to proletariat but it's good for me to know given all the folks that i have to talk to and everything professor rozelle you mentioned human capital other steps that uh one is trying to promote economic development broadly widely shared amongst that 1.1 billion people of the 1.4 billion in china what is common prosperity doing right so far that you would think that this could potentially address those 1.1 billion people what additional things um that you would would make a big difference yeah um thanks um scott and uh this um i think it does follow just on what what joyce is you know was saying um um in that they you know over time since deng xiaoping you know that's what's taken the 1.1 billion people from below the poverty line or there's six or seven hundred million and you know raised them above the pound but it was right it was the market reforms and decollectivization in the 1980s it was opening of the off-farm labor markets in the 1990s it was wto and you know the expansion of trade um in the 200 you know by the time we got to 2014 you remember poverty went from 700 million to 680 million right and the last 20 million is what's what's happened there and it's been driven largely by rising access to off-farm markets and rising wage rates okay um my colleague here at stanford humbing lee you know wrote a paper the end of cheap wages and it's the end of those cheap wages right through 2013 2014 that really eliminated all this property it was market driven you know reforms that did this the last 20 million yes it was handing out bags of cash to the handicapped and to the elderly without their kids right so um which is good right that's a good thing so where are we now and are we ready to launch the second um in fact the trends are going exactly opposite um because of wise rising wages right we've had companies firms move out of china and we've had enormous automation in the in the manufacturing session employment and manufacturing is falling right employment and construction is falling right as they built all the roads um and now we're left with you know a very very rapidly expanding uh low skilled no skill labor uh service sector and like what joyce just said nobody has the money left over to buy those services or you know it's is and and wages are growth rates and overall wages are falling in that sector so so this you know it's 1.1 what there should there's the 500 million 600 million people in this low-skill sector um i think you know you look forward and say where are they going to be ten years from now um and then you say okay that it doesn't look good well maybe that's what triggered common prosperity okay so what's going to solve it well if china does become this high-income high-tech high-skill economy there's only two ways to solve it okay and one is these people without skills and that's how you have to give you have to keep transferring bags of cash to them i mean you you need a hundred million people in the low skill service sector but you don't need 600 million or you have to educate this sector and and guess what right you start educating people right now at zero to three at four to six at six to fifteen and they're going to be ready to enter this sector in 2035 and they're going to get a job in 2035 2040 and i think that's great we can hold on we can go through but guess what there's almost no effort there's very very little effort to improve rural education to improve rural health um china is one of the only middle-income countries in the world without a zero to three parental training session that and and and this is where we're at so i don't see the effort focused in the right way if we want common prosperity there's only really one long-term way to do it and that's your whole population needs human capital but but you know you've heard me say this scott if you compare china a middle-income country to all the other middle-income countries in the world guess what china is number one it has the lowest level of human capital in the entire middle income world number one low and that's measured with this oecd is the share of the labor force that's been the high school and and you know that that this isn't a problem that's solved in in 20 it's a it's a problem that's solved in 40 years and and it has to start now but i haven't seen the commitment to that and so that's what i'm standing by for um and uh so i think common prosperity for all is a long way off and i don't think that the current government understands what common prosperity in a high income high-tech economy uh really depends on scott i'm going to turn to john next but just as a parenthetical here is you you've written about this done research on this for uh a long time is it a political is this essentially just a political choice of some elements to create to address that problem in rural china is basically a political choice that it's not those folks aren't in xi jinping's coalition for ruling there is there a downside to china doing that is it because it dis favors the urban elite or what's the what's the political calculus that says let's not spend that money there let's spend it on um electric vehicles and ai sure because because i i think it never was i think what people in china the the the political economic leadership doesn't realize is economic development from poverty to high income is two different phases one you go from poor to middle income and guess what china did that perfect right they they put everybody into primary school they made them literate numerate and gave them great discipline and they become great factory workers right but it's that second faith why is it that a hundred countries in the world are stuck in the middle income trap and in the past 60 years only 15 of them have graduated and and those 15 of them they did crazy things like when their women were in factories you know sewing textiles for 12 hours every day they made him go to high school at night that's what south korea did right and taiwan had everyone going to high school the academic high school with a lot of american aid right and and etc but those are the con those are the countries that did that and so i think that it's it's they just didn't understand that this second phase of development is really different than the first phase of development and again i know china has already said we've already escaped the middle income trap i actually don't think that that's true and i hope it is i mean i think we're going to test just a little about what are the implications but but i think that we need to really worry about that uh john let me ask about um china and the global economy and multinationals i mean you you advise a lot of companies you've worked in china so i guess from a couple perspectives what are what are your clients asking about what are they most curious about uh with this transition the last year um do you provide reassurance to them do you highlight the risks that joyce mentioned at the very beginning because there's these policy risks um you know i've not yet seen you know protest in front of mcdonald's or starbucks or other symbols of of american capitalism be paraded or massive boycotts of folks you know smashing iphones in favor of xiaomi's or something like that what's the what's the what are multinationals worried about what are you telling them they should be worried about thanks god well definitely american companies in china are not the source of the the tremendous strains that the country is under today and i think scott is absolutely right to refer to the middle income trap this is something that i i'm absolutely convinced is uh of um of deep concern to uh to policy makers and thinkers and analysts in in china it is very very difficult uh if you look at the um all the the secular slowdown in the economy in the chinese economy over the past decade or more they're fundamental economic reasons why that's happening and you can't just snap your fingers and get back to 10 percent growth if you don't have growth who are you taxing what are you taxing to redistribute income and i i worry about this you say well okay people are sitting on a lot of wealth in their homes but taxing people on that to take something away from them that they already have is not going to be very popular it's very difficult to do these kinds of redistributions so i think that the the the challenges that china faces going forward are actually uh pretty severe and to some extent i would i would even say that the this called about this discussion about common prosperity makes a virtue of necessity in the sense that um you have to go there to to break free and so there's going to have there's going to have to be an awful lot of teaching and propaganda about the importance of doing this in order for the the measures that will address the problem to actually take hold but getting to your questions scott i think you know foreign businesses and we advise not just american companies but foreign businesses are have been doing relatively well uh in china they're they're profitable uh uh and they're serving the chinese market they they've and they see that their businesses and services are are filling a need um are they concerned about what china's economy may look like three to five years from now yes but um these are these are kind of uh dark holes that you can't really base a business on so people are sticking to their business plans the things that they do worry about however have to do with uh a sort of closing down of of of public discourse and the potential for um a sort of uh nationalism or populism to erupt at times from time to time um against foreign uh players and in in in the cases of expatriates um we've seen we've seen surveys that show a lot of people are reluctant to go to china at the moment because of what's happened to the two michaels the canadians and so this is uh people are concerned about these kinds of things they're they're concerned about changes in hong kong the national security law and anti-sanctions law and they see china evolving in ways that give the state power over over every aspect of their operations including their their personal safety so these are the kinds of things that people are concerned about and they're concerned about um china's relationships with other countries of course including united states which are not in good shape uh so and then lastly i would say one thing that is is being raised increasingly by people is there a risk of a war over taiwan that is something that people are asking um [Music] and uh there's concern about about that so there so that's helpful so it sounds like uh this is a big policy or a big change of direction uh with a whole body a lot of new policies that uh folks are still trying to understand but there are other big questions just about china's political stat political direction uh nationalism war and peace that is equally important for multinationals to weigh so this isn't yet the single thing that folks are saying i need one week of your time john to educate me on this one thing it's it's still amongst a group of things it sounds like and it's right and it's a work in progress these are early days to understand how uh how much of these policies and new initiatives will actually um uh become will the gears mesh and move forward and how much of them will simply remain aspirational i'm going to draw now from some of the questions that are coming in for those of you who are watching now uh you can go to the event webpage uh and type in your questions uh they're being forwarded to me i'm garbling and mangling them and turning them into things that folks don't understand to make this funner i'm i'm actually asking what's being coming in so let me let me go to one question uh which is and i'll start with joyce but i think all of you have a way to to chime in here which is because joyce you mentioned if china slows down one percent the world slows down half a percent latin america it's one to one um you know i know china has a closed capital account largely there's some ways you have direct investment portfolio but it you know you have to you know pass go have you've stopped for a while it's so there's there's and there's some some kinds of restrictions still so um give us a very brief primer on the mechanisms by which china's overall shift structurally or cyclically if uh go out to the rest of the global economy through is it through financial markets and interest rates is it through you know less demand for new housing in shanghai means less demand for copper which means less investment in mining elsewhere or um you know scott roselle mentioned the higher wages in china lately how does how does the chinese economy's um trajectory get fed into the rest and then gets you to that that effect on the rest of the world now well thanks for that question um scott and from the audience as well so first of all i don't think that it's necessarily like the bond and the equity the portfolio flows um that cause the contagion you still have the foreign ownership of china's government bond market of the um equity market is still like low single digits you know three to four percent of the market so i don't think it's so much the financial market contagion and as i mentioned i don't see evergrand as being systemic it's really the china demand story um and we can see that with commodities where you know the measures that have been put into place are part of this rationing process as china goes towards decarbonization but you can see the effect that that's taken on commodities but it's about china china's consumption and you know i fully agree with john that you know the u.s companies are sort of you know committed to china um we think that china will actually reach the same size of the u.s economy before the end of the decade so it's the access to that market still that's very important for all um you know multinational businesses and the pandemic really did change this um with china being the only country that had positive growth last year with north of eight percent growth this year we think it accelerated the um timetable for china to reach the same size of the u.s economy by two to three years just from this pandemic so i think that the you know the linkages that are the most important are really that china demand story because so much of the world has depended on that um and i think the other piece of it is the supply chain what we have seen is that the supply chain bottlenecks have stayed in place longer than expected so everybody said this is transitory it's going to revert back but we haven't seen that happen as easily i mean the truth is we're in a less open world right now um that you know there are more deglobalization forces that are at work so when we look at things like inventories being at a 25-year low a lot of that is linked to the asia story and specifically to the china story so i look at the contagion points much more as being related to supply also to china demand now i don't think the common prosperity is over and there's really three channels that the chinese are trying to achieve common prosperity the first is market outcomes but i think they've decided that market outcomes alone are not going to do this the second we've talked about um and scott and john have both talked about this it's taxes and transfers but the third part they've laid out for common prosperity targets is what i call tertiary targets like charity voluntary community based um which we haven't seen yet so i think this is something where there are still other um you know policies that are going to be rolled out and there's also a very long term time frame to basically um you'll make progress on the the way it's worded make progress on these goals by 2035 and to achieve these goals by 2049. so i don't think that this is over um and i think that um you know a lot of this like how should the us and china behave can you really decouple and look technological the decoupling is costly and is that even really possible um you know these are issues scott that you and i've talked about for many years right now but um i i i think that on both sides you know you you have just the decoupling is not going to be that possible just given what the global linkages are yeah um that's really uh extremely important points to make and um you know i do think um there's a lot of stuff going on in washington trying to understand that uh although we may and i think we're gonna see in the coming weeks and months uh washington's own you know sort of new policy initiatives but i don't think we can hold a candle to china's before you were going running through that list of policies the word manic came into my head and i was thinking of the manic phase of the cultural revolution and you know what washington we're still gripped by you know it's still gridlock um so scott from your perspective um china's you know part of this is uh you know nationalism as john said uh self-reliance um you know you mentioned education you know banning uh you know nighttime schools uh etcetera what what what is this broader change in china's political trajectory under xi jinping mean is this gonna um i have a hard time seeing how how a more closed politically tight china gets more more growth and more equitable growth is are you a glass half full on this glass three quarters empty dirty water yeah i i yeah i i really have trouble seeing where the growth comes out of this and um uh and i think that um rural revitalization right a revitalization i mean we're gonna move all the farmers back to the back to the farms you know obviously obviously there's no growth out there right the the other you know it's it's dual circulation economy and we're going to move i often say you know they want to get you know make getting our urban huco easier but what they mean is they want to move um 200 million i mean what twenty thousand people to two thousand third and four fourth and fifth tier cities right in other words they want four hundred million people to move into i always call it they wanna make uh two thousand cincinnati's right they want to have a country that's populated and and of course you know the 350 million you know middle class and upper middle class they live in beijing shanghai shenzhen right uh who's going to populate these you know 2000 cincinnati's it's going to be people low income right and if if the middle-income choice people aren't consuming you know what do low-income people consume right i mean uh they aren't going to be consuming services and in these fourth and fifth-tier cities there's gonna be no manufacturing and very little construction so i i just don't understand where this growth is gonna come from and um you know marty white i have to say marty white from harvard tracked you know the happiness of china in this country full of inequality and even though people understand that they're in the bottom tertile bottom quartile of this uh bottom medium of this country they've got better over time but as soon as you start to get worse over time all of it changes right so when if the growth does slow down which i think that like we say both both the speakers have said if growth slows down the bottom half of this economy is going to look forward and say i don't see myself getting better this i see the end of the china dream coming then oh my gosh all bets are off um you know people start to act very very different um than they do now so i i i think we're a long ways off and i don't see in this new economic plan that they have how where the growth comes from go ahead go ahead i just want to jump in a little bit on this because one of the problems in understanding china is just parsing the very the contradictory messages that are coming out you know on the one hand china wants to be self-reliant you had to china 2025. um the dual circulation seems to want the world to be dependent on china without china's dependency on the world and a lot of that stuff when you think about it just doesn't make sense for china this country it needs its export industries to power employment this is a big deal for china it may not be a exports may not be a massive percentage of china's gdp but it surely employs a lot of people and they get paid um so you know china right now the the power crisis would it be better if they were still importing coal from australia for example and i kind of wonder if there isn't going to be a shift within the within the party to have a deeper recognition of the reliance and the inevitable reliance of china on the rest of the world and to to get away from some of this antarctic thinking that i think has been it is infecting some policy making and if that's the case then we may see a the opportunities for for better uh discussions and conversations with other countries including our own well you're exactly where i wanted to go with this so uh great minds think alike and i think if you took the sentences that you just said john and you switch the words u.s and china in most of those sentences you'd be talking about the conversation we're having in washington should we be dependent on china should we become self-reliant should we bring all the supply chains home it's it's you know it's it's similar conversations uh around different you know coffee tables slightly different shapes um so which is where we now need to go since css is a washington dc think tank and we've gotta you know speak to the policy community so you're you know you're in the nsc the state department commerce treasury et cetera you're looking at china's effort towards common prosperity um in all of its uh glory uh and complexity is the us learn from this geez china's gonna china is gonna get it right they're gonna be they're gonna be more formidable 2035 2049 we really need to up our game or is it geez this is really actually not gonna fix problems it may actually make things worse it may get to the word that i didn't use that was hidden in scott rozelle's point in referring to marty white's book the social volcano that's going to occur what what's what's the lesson that you know washington policymakers should should take away from this each of you what would you say for them is is the big takeaway message um in terms of you know where is chinese going or what the us should do in response maybe we'll start with uh john and then uh joyce and scott yeah scott this is a it's a great question you tweeted out very nicely and and you know we um the commerce secretary is saying decoupling is impractical it's it's not in our interest it's not in china's interest and i think um we we need to have some consensus on that across the aisle secondly we do have security issues we have security problems that we need to pay attention to so build high walls around a small garden to to keep um technological advantages where we need them uh and be prepared to work with china work wherever possible you know um china if it's massively successful well depends what you mean by success if it if it includes an evolution socially and economically that we think is favorable to us well that's great if if china is a failure that's a disaster for the world also um so that doesn't you know we would like china to be successful and we want to work with them to make that success one that's compatible with us and everybody else yeah joyce no let me just you know add to um john's points that you know that you know i i think that one thing that has concerned me is that the technocrats seem to be with a more diminished role in china and also in in the us in this discussion it's become much more of a national security discussion and i do worry that you want to have that um economic dialogue the technocratic dialogue um back into place um and i am more skeptical that you you can actually achieve technological um decoupling um i i think the market will turn its attention to some of these bills that are getting discussed in the congress after infrastructure um and the social spending the budget reconciliation because there are a number of bills about um you know technological development and self-sufficiency for the us so i think a lot of this rhetoric is going to come back but what worries me when i look at the state of dialogue is that just given the rhetoric that's being used and as you said that both sides it's very similar rhetoric it's about addressing inequality it's more nationalistic it's about talking about self-reliance what worries me is the language that's being used right now really doesn't provide an off-ramp um and i think you need to have those technocrats sort of included as part of the discussion and even when we talk about sanctions and some of these measures on the majority of the trade between the us and china on the manufacturing side it isn't these national security interests that could be of the 650 billion you know several billion now that but not the vast majority of it so i think it's very important to you have a dialogue um you that does continue rather than each side sort of playing for the domestic audiences um and bringing the technocrats um you know back together in that dialogue um i i hope that is something that can still be achieved in this environment where i think post pandemic there has been a real rise in nationalism you know around the globe yeah uh scott rozelle what do you think yeah um i just why i'm gonna add a little bit this is a little out of the area of a development economist that uh squats in rural villages um so but but building on what what both of um john and joyce just said you know i my feeling is if growth does slow and if it doesn't matter if it's because of conflict with the u.s because of uh faltering supply chains or because of of whatever um you know i i think that's going to accelerate this polarization inside china um you know there is going to be a real legitimacy problem um at home and um you know if if we were really lucky when the the you know when the soviet union sort of faltered and we had gorbachev in place but um you know uh i think that i think that what we'd see is a turn to nationalism you know if growth faltered stopped if there was a rise of crime if there was a rise of of you know even a thinking that uh a lack of confidence in the party and in the government and i don't think there's many good outcomes from that and uh um that uh i think that that's why you know we are in this together and it's just what just what john said like this is um you know we can't break your supply chains our own self-sufficiency isn't going to drive our growth forward um i think we need to figure out how to do it it's it's not all in like it used to be but um uh just you know i like how john put that um uh manage this right and let's keep going we've only got a couple minutes left and um i wanted to ask a question maybe comes out of left field a little bit for you all but um i'm sitting in washington dc in my office joyce is at her home we're all we're all at home um and we're not on planes we're not on the ground in china uh we're not getting jet lag if we wanted to understand common prosperity or some other big thing that's going on in china things that that you work on that your students scott want to know about or john your clients or joyce uh the the folks that uh put their trust in jp morgan and you got a chance to go to china and and do one thing where would you go what would you want to try to learn that is much harder from the seat that you're currently sitting in um professor roselle if you got if you had a chance what what would be the first thing that you'd want to learn that we that we can't that what's that x factor that we that this discussion is would be better help to resolve if we could travel so i like i said i spend my time in villages and uh in you know rural towns and we go into households we're doing our you know our work on you know early childhood development and on health and on on education but along the way um you know uh everett you know our friends in china are our rural chinese men they're so honest with us they tell us what they're thinking and you know um the the 35 years i was working in china it was always you know gosh i i see a better life ahead of me right um the last three or four years the last three or four years you get these young men coming back and you know you've never seen a young man in a village right because he's always up working and he's saying i just can't find a job i don't know what i'm going to do um and they that were were missing the you know the huma the voice of the chinese people you know i'm i'm talking to you know the the rural half of the population which is you know 72 percent of the population right now uh uh and um but you know i think that that's what we're missing and you know and i think that it goes both ways you know we we see on the news that everybody's happy and i think there are but i think that there are segments that they're starting to to to um to reflect concerns or to be happy about things either way so i think that that's what we need to do is get out and just talk to you know the masses and uh see how that interacts with the data we're getting and and the analysis that we're giving john you mentioned the five volume set that placed in your hotel room are you looking for a different type of book placed or what would you want to learn most about i i do two things i'd love to go talk spend some time hanging out with my buddies at peking university where i spent three and a half years uh faculty and and and students and i'd love to go back to chihuahua county just outside of jinan in shandong where cargill built its first investment there uh in 1988. i'd like to go back and talk to folks that's that's what i do well uh joyce so as i mentioned i hope they really do keep the technocratic dialogue going and i think as john said that you know it between academia you know there um and between just technocrats there used to be just a dialogue that really wasn't as tinged as much with nationalism and with populism and it seems like some of that dialogue has gone by the wayside you know other things we've tried to do is we've done these virtual road shows to try to see what's going on on the ground more clearly since um we can't do the in-person visits but the final thing i would say is just that you know everybody should be reading um you know the um communist party um statements very carefully because they really do allude to all of this so you know common prosperity was actually quite well outlined in 2017 in the 19th party congress and you know china very rarely you know presents a problem without also having the solution so i would just say you know go back and very carefully read what's coming out of the party statements i also hope that the academic dialogue of the technocratic dialogue is something that can sort of be separated um away from some of these more nationalistic populist forums and and i think that you know we've had to rely much more on how we can virtually see what's going on in china and see where the mobility is at that that helpful good answers from all of you and the next time i go to china i wanted four of us to go and we're going to go to each of your favorite places and we will come back with a relatively comprehensive understanding because we will touch the four corners of the country but in the meantime i really take joyce's uh guidance to heart we can read we can watch uh we can learn and you all have helped us learn a lot you're fantastic china watchers whether you're on the ground in china or you're in the united states trying to help us understand things i want to thank joyce scott and john for being with us today uh my css uh team in the in the trustee chair and the broadcast team for bringing this to everybody for audience members for for listening for offering good questions i'm sorry we didn't get to all of them but this is an ongoing issue we will be coming back to this many many times thank everybody for joining hope you have a good uh day evening uh wherever you are uh take care cheers thanks god thank you thank you scott [Music] you

Channel: Center for Strategic & International Studies

Views: 9,841

Rating: 4.0873785 out of 5

Keywords: Center for Strategic and International Studies, CSIS, bipartisan, policy, foreign relations, national security, think tank, politics

Id: pAyV-iyCUcE

Length: 63min 14sec (3794 seconds)

Published: Wed Sep 29 2021